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Level Funded Health Plans

Let’s Discuss Level-Funding for Employers

With a Level Funded Plan, saving money doesn’t have to mean sacrificing security.

Did you know 63% of small business employees spent less than $1,500 on healthcare last year?

For some employers with fully insured health insurance plans, this means they missed the opportunity to get their premiums returned to them from their insurance carrier when their employees had lower-than-expected claims.

What could your organization do with premiums from your health benefits plan?
Could you reinvest and grow? Could you offer richer employee benefits for your staff?

As employers grow in the amount of staff, they often find that self-funding their health insurance plan is a more cost-effective strategy. Moving away from a full-insured health insurance plan to a self-funded health insurance plan can result in many benefits, including a great opportunity to reduce a major cost on a company’s balance sheet. The challenge for small and mid-size employers (typically defined as organizations with less than 500 employees) is that they have limited options with self-funding. When the number of employees at an organization is 100 or fewer employees, there are nearly no options for self-funding…but this is where level funding comes into play.


How does a Level Fund Health insurance plan work?

Level funding insurance is a health plan design option that provides the security of a fully insured plan while offering the potential cost savings and flexibility of a self-insured plan.

In a level-funded plan, an employer pays a “level” fee each month to a carrier, which typically covers the cost of administrative fees, third-party administrators (TPA) and stop-loss insurance. The insurance carrier or TPA will handle facilitating the health plan, including paying out claims.

Just like with a fully insured medical plan, the company pays a set monthly insurance premium throughout the policy period. The advantage is that you are not paying premiums based on community rates. This can be a major financial advantage if you have a healthy population of employees.

These plans are designed specifically for small businesses and they are comprised of three core components:

  • Self-Funded Medical Plan: Pays covered medical expenses of your covered employees and their dependents
  • Third-Party Administration (TPA): This is an agreement between you and the insurance carrier for claims processing, billing, customer service and other administrative costs
  • Stop-Loss insurance coverage: Stop-loss insurance is set to protect your plan from catastrophes by members of your group. If your members make more claims than what you contributed, this is when stop-loss kicks in and will cover any costs over the preset capped amount.

At the end of the plan year, employers may be entitled to a surplus refund if their actual claims are less than projected. If the actual claims exceed what was expected, the employer is protected from the unexpected cost with stop-loss coverage. An additional perk is that employers pay lower monthly premium taxes throughout the year and your plan won’t be subject to state mandates.


What’s best for people—
is best for business.

Risks vs. Benefits of Level-Funding

Level funding is an option that can help employers in their health coverage budgeting efforts. With level funding, employers pay a set amount each month to a carrier. This amount typically includes the cost of administrative and other fees and the maximum amount of expected claims based on underwriting projections, as well as embedded stop-loss insurance.


  • No community premiums -You only pay the claims, stop-loss insurance and admin costs you incur. Stop-loss insurance can protect against large claims.
  • No lost money – You’ll get any leftover money back if low claims lead to a fund surplus.
  • Better utilization reporting – You can better pinpoint potential areas where employees could use more education to make wiser healthcare decisions.


  • Potential for higher administrative fees – You pay more than just the cost of claims.
  • Out-of-pocket claims costs – Consider the worst-case scenario of a high volume of claims.
  • Contractual impact – You’ll need an experienced expert to guide you through this plan type, as different businesses have different needs.

What Aspects of Level Funding Are Most Clients Not Taking Advantage Of?

Many small businesses that are venturing into level funding for the first time are typically focused on getting their premiums back. However, many fail to realize that this can also be a perfect opportunity to improve their plans. The market is much more stable than it was five years ago when a lot of companies started pursuing level funding – so you might want to consider implementing different tactics to match the current state of the market. Horton consultants can help you dive into the data, pinpoint your strengths and weaknesses and provide tailored recommendations.

Is Level Funding Health Insurance Right for You?

  • Are your employees healthy and at low risk for developing serious medical conditions?
  • Do you have fewer than 250 employees?
  • Are you hoping to obtain more payment predictability than a self-insured plan?
  • Do you wish to improve your company’s cash flow?

If you answered “yes” to the above, level funding might be the right decision for you. Contact The Horton Group for more information about coverage options.

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Jason Haas, Taft-Hartley, insurance broker.